Sometimes as a first home buyer, you can find it difficult to get your loan approved. You've finally found the perfect piece of Belconnen real estate, but you just can't seem to find anyone who is willing to give you a mortgage.
It can be extremely disheartening if you find yourself frequently rejected from lenders without much explanation. With the loan process being as complex as it is to a newcomer, it can be frustrating to figure out just where you are going wrong. Meanwhile, the Australian Bureau of Statistics (ABS) reports a drop of the proportion of dwellings purchased as first homes to only 15.1 per cent in October 2015. You are certainly not the only one suffering from the rejections.
To help you with this, we've put together a few ways that you can clinch the deal, get yourself a loan and finally become a proud homeowner.
A major factor that a lender will consider when assessing you for loan approval is your credit report. This report consists of all sorts of information about you and your finances, ranging from credit cards, debt agreements and perhaps most importantly your repayment history.
It is certainly possible to take action on improving your credit report.
Your credit report gives your lender an idea of how much you have borrowed in the past and how successful you have been in paying it back. If you have for whatever reason missed repayment dates on credit cards or other such obligations, this can seriously damage your credit score and thus makes lenders wary of lending to you.
However, it is certainly possible to take action on improving your credit report.
You may find that your bad credit score is a result of a number of mistakes: MoneySmart suggests checking your credit report every year to ensure that no errors have been made, and challenging them if they have.
If you can show that a listing in your credit report is wrong, it has to be removed, which will improve your score.
All lenders want to know is that you can handle your finances in both expenditure and in saving. Having a significant chunk of change put away demonstrates to the lender that you earn enough to have a savings surplus and thus are able to make repayments. It also allows you access to a wider range of loans, particularly if you are borrowing more than 80 per cent of the purchase price.
In addition, if you have saved a larger deposit, you may find that you are offered a more competitive rate as a result!
You should also investigate if you are able to get a grant for your first home: The ACT government provides a substantial lump sum for first home buyers who move into a newly constructed dwelling. With total ACT dwelling approvals from 2014-2015 reaching 4,253 according to the ABS, you can be sure to find one of these new homes in your local area.
Receiving grants such as these make it easier for you to get approval and takes some of the pressure off you to the tune of up to $10,000. For the right home, this could be 25 per cent or more of your initial deposit!
As a first home buyer, you may not know all the ins and outs of how lending works, so if you face a rejection, make sure you ask why. You may find that they didn't think you had enough capital, but it turns out you forgot to mention other assets that you have such as superannuation, cars or furniture. With those additional high-value objects, it gives the lender the impression that you don't simply spend all your earnings and have nothing to show for it.
Sometimes all it takes is just a little bit more info for a lender to change their mind about your options.
Similarly, ensure that you provide accurate information. It may be tempting to over exaggerate the value of your collateral in order to clinch that loan, but it will be far worse for you if your lender discovers the Lamborghini you mentioned is actually a junky clunker. Loans are all about trust, and if you bend the truth with your information then it throws your entire ability to make repayments into doubt.
You may find that the reason a lender is unwilling to lend to you is simply because the loan is too much for your circumstances. It can be quite a bummer, but you may want to reconsider what you can afford in a first home. Remember, your first home is often not your last!
If it does turn out you have to find a different home, speak to the local real estate experts to find out how we can help you find your perfect first home.